FinecoBank Banca Fineco SpA

MIL:FBK

Earnings Call Transcript 2022-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Fineco Bank First Quarter 2022 Results Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Alessandro Foti, CEO of Fineco. Please go ahead, sir.

[Alessandro Foti, executive]

Good afternoon, everyone, and thank you for joining our first quarter results conference call. Before having a closer look to our results, let me please underline that in the recent months, there has been a huge change in the structure of the market, which is further enlarging our growth opportunities.

As you know, our new dimensional growth is underpinned by the recent acceleration of the structural trends which are shaping the society. This has been further strengthen by the dramatic increase in the interest rates scenario since the beginning of the year. Our business model, as a one-stop shop quality platform is benefiting by the new market structure has, we expected, a strong increase in our net financial income, thanks to the strong gearing to the interest rates of our quality and capital light and net interest income, which is driven by our clients' valuable transactional liquidity and not by lending as for other banks.

On investing, we expect strong results, despite the challenging environment, with robust influence driven by structural trends and by the growing contribution by Fineco management.

On brokerage, we expect a structural higher floor compared to the pre-pandemic levels, thanks to our quality target market based on wealthy and financially aware clients and to our business model.

The main outcome is that Fineco is becoming more and more, a fast-growing and capital-light business with structurally higher profitability and structurally higher room to dispose of it as the leverage ratio is no more a point of attention. This will allow us to distribute a higher level of dividends and, at the same time, to be in the position to invest more on our growth.

Let's now move on Slide 5. Going into the details of how our quarterly results, adjusted net profits in the quarter was equal to EUR 124 million, up by 30.5% year-on-year, thanks to our diversified business model, with all the 3 product areas that are firing at once. Adjusted revenues at EUR 256 million, increasing by 23% year-on-year, and mainly supported by the investing, thanks to the growth in asset under management and the higher control of the value chain by Fineco management.

Operating costs were well under control at EUR 69 million, increasing by 4.1% year-on-year and confirming operating leverage is a key strength of the bank. Adjusted cost-to-income ratio was equal to 27%.

On cost, let me please remind you that the strategic decision to manage almost 100% internally, our IT, is protecting us from the inflation on IT cost. Our capital position confirmed to be strong and safe with a common equity tier one ratio at 19.3%.

Our commercial activity is accelerating as well. Also, in April, we recorded strong results with the net sales at more than EUR 1 billion, and the mix confirmed to be strong with around EUR 0.6 billion in asset under custody and around EUR 0.4 billion in asset under management, of which 77% represented by Fineco assets under management retail net sales.

Brokerage revenues are estimated for April at around EUR 14 million, around 24% higher compared to the average monthly revenues in the period 2017-2019. This result was achieved despite volumes being extraordinarily low in the month, at levels last seen before 2018, when our monthly brokerage revenues were much lower. This confirming once again, that the floor of the business is now definitely higher.

Let's now move on Slide 6. As announced, we reached very strong results also in this quarter, we've adjusted net profit at EUR 123.6 million, plus 30.5% year-on-year on a like-for-like basis, despite the very challenging macro scenario, revenues at EUR 255.7 million, up 23.2% year-on-year, as we have been able to catch the strong acceleration of the structural trends in place, mainly thanks to the contribution of investing and to the robust net financial income.

Operating cost, well under control at EUR 69 million, increasing by 4.1% year-on-year, excluding cost strictly related to the growth of the business.

Let's now move on Slide 7 and start to analyze more in detail, the dynamics of our results. Net financial income in the quarter at EUR 107 million, increasing by more than 43% year-on-year. Net interest income at EUR 59.3 million and profit from treasury management at EUR 48.1 million. Let me highlight that given the new interest rates environment, for this year and going forward, we expect a significant acceleration in the contribution of the net interest income to the net financial income. And we don't expect additional profits from treasury management.

Let me remind, our sensitivity to a change in interest rates, which is driven by our clients' valuable and sticky transactional liquidity. The parallel shift of plus 100 basis points would generate EUR 147 million of additional interest income.

One of the main consequence of our focus on becoming more a platform than a bank is that we are continuing to accelerate the growth of our non-financial income, which in the quarter reached EUR 147.6 million, up 11.9% year-on-year, mainly thanks to the positive contribution of investing and banking.

Overall, brokerage registered an excellent quarter at EUR 59.7 million, close to the record levels of the first quarter 2021, and strongly increasing compared to the last quarter of 2021, confirming a structurally higher floor compared to pre-pandemic levels.

Now jumping on Slide 21, we will deep dive on the performance of the brokerage business. In the first quarter of the year, brokerage confirmed that the floor of the business is structurally higher compared to the past and regardless of the level of volatility. As you can see in the chart on the top of the slide, in the first quarter of the year, brokerage revenues reached EUR 59.7 million, resulting in a monthly average 77% higher compared the monthly revenues in the period 2017-2019.

In April, estimated brokerage revenues at EUR 14 million, around 24% higher compared to the average monthly revenues in the period 2017-2019, despite volumes on the market have been extraordinarily low in the month, at levels last seen before 2018 when our monthly brokerage revenues were much lower.

Let me remind you that the growth of the brokerage business is driven by the contribution of 3 structural components. First, the deep reshape of our brokerage business. In this regard, we are live with the crypto offer on Bitcoin and Ethereum through CFDs options and listed ETPs with our usual strict and rigorous target market. We are also live with our Turbo Leveraged certificates platform. And in the third quarter of 2022, we will launch a brand-new brokerage platform, which will combine our state-of-the-art standard with top quality, easy to use.

Second, as you can see on Slide 22, the client base using our platform is widening, with active investors that have grown significantly in absolute numbers, standing around 35% above leveling of 2017-2019. Let me remind you that our active investors have an average of 4 executed orders per month, are wealthy people in their 40s/50s with assets on average above EUR [ 200,000 ]. And the vast majority of them has a relationship with our financial advisors for long-term planning of their financial wealth. We are also alive with the most competitive, offer in Italy to catch the next generation of active investors.

Third, we are continuously increasing our retail market share. Let's now move on Slide 8 for a focus on investing. As you know, we are in the sweet spot to capture the structural trends in place in Italy. And also thanks to our initiatives, we have experienced a strong acceleration towards asset under management. On top of this, Fineco Asset Management is now reaching a new dimension in the economies of scale, this taking more control of the value chain. As a result, investing revenues were equal up to EUR 73.4 million in the first quarter of 2022, increasing by 28.4% year-on-year, with management fees increasing by 28.5% year-on-year.

The quarterly comparison is characterized by the usual seasonality in the PFA costs related to FIRR and Enasarco and they are higher at the beginning of the year. And two, EUR 4.2 million of other commissions in the fourth quarter of 2021, related to operating efficiency reached throughout the year in the value chain on institutional classes by Fineco Asset Management, which are booked each year in the fourth quarter.

Management fees margins after tax increased to 52 basis points in the quarter despite the negative market performance, thanks to Fineco Asset Management delivering on its strategic discontinuity and to the accumulation of products which are increasingly shifting towards equity.

On top of this, we have also recorded a positive contribution by Fineco Asset Management activity on the substitution of funds underlying of wrappers with each owner funds, which is in turn reinforcing the FAM coming from retail classes.

Let's now move on Slide 9 for a focus on our cost. This slide confirms, once again, efficiency to be part of our DNA and core in our bank, representing a clear and unique competitive advantage. Also, this quarter was characterized by cost directly related to the strong acceleration of our growth dynamics in the new normal world. Operating cost in the quarter are EUR 69 million, growing by 4.1% year-on-year, excluding cost related to the growth of the business. Mainly, additional EUR 1.7 million cost for Fineco Asset Management, that they are [ current ] with the acceleration to further expand its business and have a higher control of the value chain. Additional EUR 1.6 million marketing cost.

Staff expenses at EUR 28.3 million in the period, increasing by 4.8% on a yearly basis, net of cost related to the expansion of the business of in Fineco Asset Management. Finally, non-HR cost at EUR 40.6 million, growing by 3.5% year-on-year, net of the above mentioned cost related to the growth of the business.

Let's now move on Slide 11 for a focus on our capital ratios. Fineco confirmed once again our rock solid capital position on the wave of a safe balance sheet. Common equity Tier 1 ratio at 19.31%, leverage ratio at 3.99%, in line with the optionality allowed by ECB and Bank of Italy. Our leverage ratio, excluding the exposure towards central banks, is equal to 3.80%, risk-weighted at EUR 4,678 million and total capital ratio at 30% as of March 2022.

Let's now move on Slide 13. As you know, in the first quarter 2022, our net sales continued to be very strong and sound, despite of the very challenging macro context. This further confirming the structural changes of our dimensional growth. Inflows in asset under management proved to be solid in the period, thanks to the ability of our network to support clients in the long-term financial planning.

Let me now spend few words on the recruiting, which is confirming the recent trend we discussed in the past quarters. Fineco is emerging more clearly as the perfect bank for professionals looking to grow their own business in a sustainable way.

As you can see on Slide 14, the strong increase in the interest of financial advisors to join our bank is continuing. To this regard, please note that we have not need to overpay financial advisors with huge upfront fees and the usage of aggressive approach historically taken by the industry. As a result, in the first quarter of 2022, we have recorded an net increase of 64% of financial advisors in our network, as we recruited 29 senior and 50 junior, with net sales generated organically by the bank at 88% in the period.

Let's now skip to Slide 18. As anticipated at the beginning of the call, we are in the sweet spot to benefit from the new market structure. In this slide, we need some changes to our guidance that are overall positive compared to our last quarter presentation. With regard to our banking revenues, we expect our net financial income in 2022 to be in a range between EUR 300 million and EUR 310 million with the current forward rate curve.

Going forward, we expect our net interest income to significantly benefit from the new interest rates environment, both thanks to the sensitivity and to the volume increase. Overall, banking fees are expected above EUR 50 million in 2022. Going forward, they are expected to keep on growing, thanks to the increase of the client base and to the previous repricing actions.

On investing, already taking into account the negative market effect of April, or up to April, we expect for 2022 revenues to increase in the region of mid-teens with higher management fee margins. At this regard, let me please underline that the last couple of quarters benefited from the acceleration linked to the substitution of Fineco Asset Management funds within the wrapper. Therefore, in the next quarter, margins are still expected to grow, but at a slower pace. We also expect net sales of around of EUR 5 billion for both Fineco Bank assets under management and for Fineco -- and for FAM retail classes and increase of around 100%, 120% of financial advisors in our network.

Going forward, we confirm the guidance of around EUR 6 billion per year in asset under management and EUR 6 billion per year retail net sales by Fineco Asset Management. We also confirm the increase of the bank's management fees margins after tax, up to 55 basis points and pretax margins up to around 75 basis points by 2024. On this regard, let me please underline that based on the most recent numbers, we expect it to reach that level before then 2024.

Brokerage revenues are expected to remain strong with a floor in relative terms with respect expect to volatility and volumes that is definitely higher than in pre-COVID period. Let me remind that this trend has been further confirmed in the first quarter of 2022 with excellent results, very close to the record high registered in the same period of 2021, and much higher compared to the last quarter.

Operating cost in 2022 is expected to grow around 5% year-on-year, not including around EUR 7 million of additional cost related to Fineco Asset Management's strategic discontinuity, to improve the efficiency of the investing value chain. On cost, let me please underline that the strategic decision to manage almost 100% internally, our IT is protecting us from the inflation on IT cost.

Thanks to this, we will consider in the coming month, visibility to further accelerate the market expenses to take advantage by the strengthening of the structural trends. Let me also add that we expect in Fineco Asset Management cost to stabilize going forward.

Cost-to-income, we confirm our guidance on a continuously declining cost-to-income in the long run, thanks to the scalability of our platform and to the strong operating gearing we have, this excluding potential higher marketing expenses.

Systemic charges for 2022 are expected in a range between EUR 42 million and EUR 44 million, located within provisions for risk and charges.

Tax rate for 2022, we expect a decrease in a range between minus 0.5 and minus 1 percentage point, considering the most recent interest rate scenario and therefore, according to the revenues mix.

On our capital ratio, we expect CET1 ratio to remain above the floor of 17% and leverage ratio comfortably in range between 3.5% and 4%, currently with the combination of both a strong acceleration in the growth of the bank and the distributions of generous dividends.

As you can see in the Slide 52, in the annex of our presentation, the point of attention related to the leverage ratios mean definitely fixed.

On dividend per share going forward, we expect it constantly increasing also thanks to the progressive delivery on our strategic discontinuities. Cost of risk was equal to 3 basis points, thanks to the quality of our lending portfolio that is offered exclusively to our loyal customer base. In 2022, we expect it below 10 basis points.

Finally, we expect robust and high quality net sales with a mix mainly skewed towards assets under management and with lower component of deposits thanks to all the new initiatives we are undertaking.

Let's now move to Slide 19. As you know, in order to take full advantage of our new dimensional growth, we are undertaking a wide set of initiatives to keep the growth of our balance sheet under control. All this set of new initiatives is already delivering, allowing us to move towards the concept of platform, with a strong improvement in our assets under management net sales, and with the growth of deposits definitely under control. As a result, we can already now, at the same time, sustain our strong long-term growth, distribute a higher level of dividend per share and comfortably remaining well above our regulatory requirements.

Let's now move to Slide 20 to deep dive on Fineco Asset Management. As anticipated during the presentation, Fineco Asset Management is progressively delivering on each strategic discontinuity to take more control of the investing value chain, resulting in higher revenues and margins for the group. As you can see on the top of the slide, the dynamics of Fineco Asset Management net sales are further improving regardless of the macro scenario. In the first quarter, our [ Irish ] company recorded EUR 0.8 billion of net sales in retail classes in a market environment much more complex compared to the same period of 2021.

Despite this, its contribution to the group, to the group's net sales more than doubled year-on-year. Fineco Asset Management continued to deliver in the internalization of the value chain with a strong increase in net sales of funds underlying our wrappers. As a reminder, this process is linked to the substitution of Fineco Asset Management funds within the building block used for funds of funds or insurance practice, this leading to an additional margin contribution for the bank.

Finally, Fineco Asset Management has further enlarged its modern product offer with a recent launch of its investment solution based on passive funds, which will allow the group to have a distinctive positioning as an innovator, and to be perfectly prepared to capture a new trend that is already taking place outside Europe. Let me highlight that in the short run, these new investment solutions are useful to target wealthy clients by reducing cost and improving performance. But we expect that in the long run, this trend is going to take place in Italy too, progressively onboarding our whole customer base, as it's already happening in, for example, in U.S.

To conclude, let me highlight that thanks to the full control of the value chain, our [ Irish ] company can offer at the same time, both an efficient pricing for clients or retaining higher margins.

I'll now leave the floor to Paolo Di Grazia, our Deputy General Manager, for an update on our U.K. business on Slide 24.

[Paolo Grazia, executive]

Thank you, Alessandro and good afternoon, everybody. Our offering in the U.K. is proceeding in the right direction. We are attracting experienced traders, loyal and looking for quality offer, with a strong activation rate at 65% on our brokerage offer.

Let me remind you that with our best-in-class price quality ratio offer, we are targeting a quality class of clients as we are not focused on hit-and-run, highly speculative and volatile customers.

As you can see from the graph on the left-hand side of the slide, we now have more than 20,000 clients, with almost 2,000 clients acquired the first 4 months of the year. The trend of our revenue's generation is extremely positive. As you can see from the graph on the right-hand side of the slide, in 1st Q 2022, we recorded EUR 0.5 million of brokerage revenues, almost doubling year-on-year.

On top of this, our cross-selling is working very well and we are continuing to improve our revenues' mix in favor of the over-the-counter and listed products, which are now the lion's of share of the growth. As a result, our business is progressively gaining traction and is already profitable at the operating level.

On a final note, we are in the process of preparing the setup to launch our offer in Germany by the end of '22, as we think that our model adjust base on the future of German market can be very attractive for local clients, also, thanks to our unique price/quality ratio. Thank you for your attention. I'll hand it back to Alessandro.

[Alessandro Foti, executive]

Thank you, Paolo. And now we're ready to open for your questions.

[Operator]

[Operator Instructions] The first question is from Giovanni Razzoli, Deutsche Bank.

[Giovanni Razzoli, analyst]

A couple of questions on my side. You have already disclosed your inflow target for the full year 2022. I was wondering, how do you think that the significant increase in the market yield can impact your commercial policies and at the end of the day, the average investment margin, because probably there is more room to accelerate on multi-class products or also Class 1 products. So if you can elaborate a bit on how this shift in the interest rates environment may impact your commercial policy.

The second question, if you can share with us, what is your reserve on the EUR 21 billion of financial investments held to collect.

And the last point, interesting, you said that you are recording higher broker revenues with lower volumes. So I deducted (sic) [deduced] that you are basically -- your clients are basically trading richer products for you. Can you provide us a little bit more visibility on these? Because it seems that you put a lot of emphasis into the sustainability of the brokerage revenues going forward.

[Alessandro Foti, executive]

Thank you for your questions. Let me start by the first one. We historically -- what we observed in the past that the interest rates needed to start on having some meaningful impact on the commercial policy. You need to have 3-month, you've really got to -- close to the region of at least 2% level. So clearly, it's still far from being there.

And in that case, clearly you can expect from the beginning of possible, more interest by clients for, for example, asset under custody solution, something like that. But as we -- and so as we explained, so if tomorrow morning, we are going to be in that kind of scenario, this would be absolutely great for us because on one end, we are going to make a real big fortune on the net interest income, considering the incredibly sticky and totally uncorrelated base of deposits. And at the same time, the impact in any case on the commercial strategy is going to be still a minimum.

So that kind of situation is an absolutely great situation for us. And I would like to remind that the main driver that is bringing, is driving up the investment margin is related to the continuous acceleration of the control of the value chain. And so -- and this is going to be absolutely perfectly in place and completely, totally uncorrelated with the level of interest rates.

On the second question, I leave the floor to our CFO for answering, please, Lorena.

[Lorena Pelliciari, executive]

Thank you Alessandro and good afternoon to everybody. As you know, 99.9% of our bond portfolio is accounted in held-to-collect portfolio. In accordance with IFRS 9, held-to-collect business model is valued at amortized costs without impact on P&L and also on capital. This means that both P&L and reserves are not impacted by the fair value of our portfolio. So the reserves are 0.

[Alessandro Foti, executive]

Regarding the third question, what we mean higher brokerage revenues with lower volumes is -- what we mean, that our clients are -- progressively are merging as trading more, also in a low-volatility environment. And this is not necessarily driven by richer products, but also -- in part by this, but mostly by the fact that we have more clients, that they are trading. And also, particularly very important, that the clients, considering the target market we have represented by wealthy and where clients are able to trade in every market conditions.

And also the continuous improvement and broadening of the platform is offering trading opportunity to clients also when the wind is extremely light. It's like to have a sailing boat that has become much more performing also in the light breeze.

[Operator]

The next question is from Domenico Santoro with HSBC.

[Domenico Santoro, analyst]

Some questions from my side. First of all, on the NII, the guidance that you give for 2022 implies quite an acceleration of the core NII over the next quarter. So I just want to understand what are the assumptions used in order to get the sense, how much bulletproof is this guidance. First of all, have you used the forward curve that you show at Page 44 to understand whether this is conditional, of course, to rate going up?

And second, what kind of assumptions were made in terms of bond portfolio rollover, in terms of -- here, I see that your sensitivity has increased, so I just want to understand the assumptions on this side.

When you say, "We're not expecting more -- we're not expecting any more profits from treasury" is it for 2022, or is also going forward for the next years? Because so far, your trading line has been quite supportive, and of course you need to protect now the NII.

The second question is on OM, on investing. I see that you revise your guidance on investing. I mean, the OM says that you expect for this year, they're quite strong compared to the trend that we have seen so far. So my question is, what makes you so confident to accelerate run rates for the next year?

And then on margins, there was a slight decline in the quarter. When I look at the gross margin, I wonder, this is something that we should expect also for Q2 or FAM will compensate for that? Because when you are commenting in the guidance, instead, you specified that margins should be up over the next quarters.

On brokerage, you said, first of all, April looks a little bit light, the EUR 40 million. Is there any accounting timing lag? Some fees that might probably be booked for the next month. And why, or maybe there is not. And when I look at the average fee in the first quarter, the orders were strong, but the average fee, they were, sort of, declining quarter-on-quarter. So I'm just wondering whether there is a little bit of competition effect in Italy, given new entrants in the market quite aggressively pushing for these kind of services.

And then just the clarification on tax rate, the fact that you reduce your guidance of decline of tax rate. Is it just due to the fact that you expect now more Italian-based revenues NII based, or there is anything else that we should take into account?

[Alessandro Foti, executive]

Yes. So let me start from the -- for the first questions. So it is pretty clear that what we are using is the implied forward rate curve. So we are not making any -- we are not using any particular internal view. So we are just using the forward rate curve. And so it is extremely easy to see the progression that we can expect. And this is going to be clearly quite massive going through 2023.

Regarding the assumptions that we have behind the portfolio rollover, is to remain -- to maintain an average maturity of the portfolio that is in the region of 5 years. And this means that if you have a bond expiring, for example, you have to invest, there is a large portion which need to be invested on a 10-year basis in order to keep the -- unchanged, the average maturity of the portfolio.

In terms of composition, we expect that the composition is going to remain diversified. And so we are going, on the long run, to stay in terms of exposure to the Italian market but stay in a region of 30%, more or less. And the remaining is going to be extremely broadly distributed among the other European [ goalies ].

And as we explained, the profit from Treasury Management and net interest margins are 2 kinds of communicating posts. So as we anticipated, that the more the market was moving for -- in a higher interest rate scenario, and the more you have to expect the profit Treasury Management practically disappearing and everything substituted by the growth of net interest income.

Clearly the growth on the net interest income side, I think that can be very easily calculated, is going to be so strong that clearly there is -- the last problem we have is to protect what is not going to be made through the profit from Treasury Management.

So just to give you an idea, but the financial income, just thanks to the net interest income through 2023 is going according with the existing scenario, is going to grow at least by more than 40%. So that is growing through 2024 even more. So they're talking about really huge numbers. And so clearly, the problem of the lack of profit from Treasury Management is completely non-existing.

And the decline gross margins in the first quarter, in 2022, please Lorena, if you want to give, but I think that is just related to seasonality, something like that. But I don't know if you want to elaborate more on the point, Lorena.

[Lorena Pelliciari, executive]

Yes, it's correct. As you can see, we have a decline of around EUR 5 million in the item cost. This is related to the usual seasonality that is at the beginning of the year, due to the higher cost linked to contribution paid for the activity of our financial advisors, FIRR and Enasarco, that are mostly concentrated in the first part of the year, because there is a cap. So this is the only reason.

[Alessandro Foti, executive]

On brokerage, as we explained, April has been characterized by absolutely extraordinary low level of volumes. When we're talking about low level of volumes, we're talking about low level volumes in the financial industry. It's not just to us.

So we have some -- in order to find similar level of volumes in the market that we experience in April, we have to go back before 2018. And nevertheless, if we compare the revenues generated, for example, in that period of time, when -- with the similar level of volumes, our revenues have been now much higher. So despite that April has been an -- has not been a good month for brokerage, in relative terms, it has been an absolutely excellent month because we -- and that this is confirming that the floor is much higher. And absolutely there is no impact by the new competition we are facing because it's a competition that is concentrated on really low-value clients and completely far away from the target market we have. So it is exactly the contrary. The floor is keeping on rising and April is a perfect confirmation of this.

And on tax rate, yes, we expect a progressive reduction of the speed of decrease of the tax rate, just because we're expecting a massive increase of the revenues generated here in Italy, because, as I was explaining, the financial income is expected to grow in a big way. It's decelerated the decrease of the tax rate.

[Operator]

The next question is from Enrico Bolzoni with JPMorgan.

[Enrico Bolzoni, analyst]

Just a few questions from my end. So one on the fee margin that clearly increased quite a bit. You say that now you expect to achieve the 75 bps ahead of time. Is it possible that you might actually go beyond the 75 basis points? And for example, I think about mix shift, considering that I presume this quarter was pretty negative in terms of mix shift. And despite that, you had a positive increase there. So that's the first question.

The second question was on the trading profit that was quite strong. I just wanted to ask you to comment maybe on the drivers. I know you clearly benefit from internalizing trades. Has there been a substantial amount of trades that was internalized over the quarter, or is there any other driver that we should think of?

Another question is on the flows that you posted for April in assets under custody, they were actually pretty strong. Do you have any visibility in terms of what clients are doing? Is it because you think there are maybe early signs of repositioning in the market and in a way we could expect then stronger trading numbers maybe in the coming month, considering the strong flows in AUC?

And then maybe one final question is on your international presence. So one is in the U.K. I mean, the growth slowed down there a bit. Have you reconsidered maybe pushing a bit more with marketing or doing something to basically accelerate there? And what should we think when we think about Germany? So, should we think something similar to the U.K. in terms of your ambitions, in terms of target customer growth? Or you think that maybe because it's a more similar market, you can grow faster than what you've done in the U.K. so far?

[Alessandro Foti, executive]

Yes. Thank you. So regarding the first question, the answer is yes, the fact that we expect a growing probability to achieve the 75 basis points ahead of time, clearly this is paving the way for going beyond the 75 basis points margin. So the answer is yes.

Trading profit, you are referring to the trading profit related to the brokerage business, I assume.

[Enrico Bolzoni, analyst]

That's right.

[Alessandro Foti, executive]

Yes. So this is, clearly, the trading profit is a byproduct by the volumes on the market. So the more -- the higher the volumes we are trading and the higher is the visibility to internalize -- so internalize the client service. Because our trading profit is 100% commercially driven, is we are matching the client orders. And so the higher are the volumes in the activity by clients, and then the higher tends to be the trading profit.

April flows in assets under custody has been extremely strong. And the reason is that the clients, that they are -- the cluster of clients that is interested in assets under custody is represented by the cluster of clients, that they are mostly driven by what we call the tactical asset allocation of their portfolio. So they tend to be extremely reactive to the market moves and these clients tends to be contrarians. So they're more -- so they tend to buy when the market is going down and selling when the client -- the market is going up. And this is exactly what's happening.

We have also -- and a part of the clients, they are clients of financial planners, they have –they are, at the same time, interested in strategic asset allocation, in tactical asset allocation. So the same story. And probably, going forward, means clearly the higher is the amount of asset under custody we have and clearly, and the higher is the base for producing high commissions on brokerage. This is a matter of fact.

So it's -- so these are, more or less, is what we observe, but it's not different from what has happened also in the past. So it is a typical approach by these cluster of clients. So they are trying to take advantage by the large swings that there are on the market.

On U.K. growth, yes, you're right, is a little bit down, but this is just because we are still in the process of understanding exactly the final setup following the interaction we are having with the local authorities. And so we prefer to be a little bit cautious. So before starting on pushing, again, more on marketing there, we want to have the final picture completely finalized. So the discussion is still underway. And so our expectation is to come to the conclusion in the next following month.

And Germany is -- clearly is even more straightforward market for us because we have no any rock blocks represented by the fact that U.K. now is not anymore in the European Union. So everything is going to be very straightforward. And Germany is an extremely interesting market because it is a complex and competitive markets, but at the same time, it's characterized by extremely reactive clients.

And we think that Fineco can be extremely competitive in comparison with what is the prevailing offer there. So definitely, probably, the opportunity in Germany, in my opinion, is -- runs the risk to be even bigger than in U.K. Don't know. What do you think, Paolo, on the point?

[Paolo Grazia, executive]

Well, yes, I totally agree, Germany is a great market for us. Again, we have a great offer in terms of value for money and I think we think we can be very successful there.

[Operator]

The next question is from Angeliki Bairaktari with Autonomous Research.

[Angeliki Bairaktari, analyst]

First of all, I see your updated guidance for AUM net flows at EUR 5 billion this year. If we look at the year-to-date print, including April, and annualize that, this implies around EUR 4 billion in AUM net flows. So I get from that, that you expect an acceleration in AUM net flows in the coming months.

Do you think, based on sort of the behavior of clients that you have observed in previous market corrections, do you think that clients could step in and invest a bit more in the market? Assuming there is a stabilization, what is sort of the underlying scenario of market conditions that you have that underpins that EUR 5 billion AUM net flow target?

Second question on banking fees. The guidance is for more than EUR 50 million for this year. How sustainable is that going into 2023 and beyond? I am, in particular, thinking that obviously you repriced -- your offering traditionally has been one of 3 current accounts. You repriced the current accounts due to the persistently low negative interest rate environment. But now this is changing obviously. Is there any chance that you could revert gradually back to offering free current accounts or you don't foresee that at the moment?

And last question on brokerage. If I remember correctly, in the last quarter, you were hoping that brokerage could be flat or even exceed the 2021 level of revenue -- of brokerage revenues this year. Is it fair to assume that we should be a bit more cautious now and potentially expect brokerage to be below the 2021 level, in 2022?

[Alessandro Foti, executive]

Thank you for your questions. So let me start by the guidance on asset under management, EUR 5 billion. Yes, the assumption behind it is based on our past experience. So as soon as we have the market stabilizing, so the market is stabilizing doesn't mean necessarily market that is starting on going up. Just means that we don't have any additional shock in the market, something that is unexpected. So we -- because starting from the beginning of the year, we had 3 shocks.

So the first one is the announcement by the central banks of their change in terms of view on the inflation direction. The second one has been the beginning of the conflict in Ukraine. And the third one has been the renewal of concern of the possible, much more aggressive hikes of interest rates that is just recent.

And nevertheless -- because what we were observing that every time that the market is able to digest the negative news and without having an additional brand-new, negative news flows, then we start picking up again.

And so the assumption is that at the end of the story, to have a kind -- I'm not saying bright skies in front of us, but a little bit more stable market in which everything that is negative has been, let me say, digested. And so we can progress a return to that business as usual. So this has been always the history also in the past. And so this reason why we are still remaining with the expectation of EUR 5 billion. So this is the rationale.

On the banking fees, you are completely right -- these are very good question because they now, considering that we are expecting a really massive increase of the financial income that is going to be really huge. And so, theoretically, the banking fees -- so the charging price on the client looks a little bit -- is paling in front of the dimension of the financial income. So it's not necessarily any more needed.

At the same time, we think that to have the clients paying a fee, with then the bank giving back to them when they're becoming good clients, is an extremely healthy approach because it's preventing the bank from taking on board extremely low-value clients. So we think that we can rule out to moving direction of making a special offer for certain cluster of clients, for example, for the young clients, this for sure. But this is what we are doing right now.

But going back again to the concept of 0 commission on the banking account, we don't think that it's a good idea exactly because the risk is to start again on onboarding cluster of clients on which we have not a great interest.

And on the brokerage, yes, you are correct. We gathered the market at the beginning of this year with revenues flat or even higher. And again, we think that -- so when we are giving the guidance, what we are assuming is a, kind of -- in a natural scenario.

So scenario in which we don't expect anything spectacular, both on the positive, on the negative side. So the guidance was being given, expecting a normal volatility, not too high, not too low, and the same story for the volumes. And so we remain on the point. So it's clear that if we enter in a period in which every month is, in terms of volumes on the market, is exactly the same we experience in April, clearly it's difficult that we can achieve higher revenues.

But for example, it's a -- just in the last few days, for example, brokerage is back again, is roaring back again and with the volumes and some. So we think that brokerage, if we stay in, let me say, decent market conditions for brokerage, so we have decent level of volatility, decent level of volumes, yes, we think that we have the possibility to get flat or even higher revenues.

Also because last year has been characterized by an extremely disappointing second part of the year. So the last year has been a year in which the first quarter has been absolutely nearing, mostly driven by the -- all -- everything happened in U.S. with the GameStop and so on. And then the volatility kept on collapsing, volumes going down. And so, it has been not a particularly exciting environment for brokerage last year.

So this is the reason why we think that in the case we have decent conditions with normal level of volatility, normal volumes, yes, we still -- we are -- we think that we are still on track for getting consistently -- so flat or even higher revenues.

[Operator]

The last question is from Filippo Prini with Kepler.

[Filippo Prini, analyst]

Two quick questions, if I may. The first one is your guidance on cost, excluding the expansion abroad and FAM, checked your guidance of plus [ 3% ]. You mentioned that you are pretty immune from IT inflation.

Just wondering if you could be immune also from some salary inflation. So for a part of labor cost in the next years.

And the second one is on lending and it seems that lending that basically you kept exclude mortgages, the expected yield [ instead ]. Just wondering if you do not expect into guidance of s higher interest rate, any contribution going forward from the lending portfolio?

[Alessandro Foti, executive]

On guidance on cost, we don't expect a significant wage inflation for 2 main reasons. One, that because historically the Italian labor market is much more rigid than in other regions in Europe. And so we think that, in any case, the wage inflation in Italy is going to be less relevant than other part of Europe.

And second, Fineco is a factory. So it's not -- we are not an investment bank. We are not an asset manager. So clearly, by definition, the level of exposure onto the wage inflation in a company that is a factory clearly is much lower. So, and this is the reason why we are -- in our projections, we are embedding some salary drift, but there is not going to be anything spectacular.

And lending, we want to remind that lending for us is an ancillary business. So we are mostly the only -- the only real kind of lending that is for us is real important is the Lombard, because it's strictly related to the investing business.

And on mortgages, we have not such a great appetite because what we're observing, that the banking system is keeping on using mortgages as a marketing tool, and so providing solutions that are not in line with prevailing market conditions.

And from a mathematical point of view, the reason why we expect [ hidden ] change, I'm leaving the floor to the CFO on the third point, that she's much more familiar with these numbers than I am.

[Lorena Pelliciari, executive]

But to be honest, we have increased the expected yield because in the previous presentation, we have 45, 55 basis points and now 60, 70 basis points. So we have increased the average yield.

[Filippo Prini, analyst]

Yes. That was excluding mortgages, just focusing on personal growth and Lombard.

[Alessandro Foti, executive]

The Lombard is, we have to wait physically for the 3 month Euribor being back positive. So as soon as, with the 3 months Euribor is not any more negative and is positive, we are going to start on enjoying an increase also on the margins, on the Lombard.

And on personal loans, is an extremely -- is a small, extremely profitable business. So we don't see any reason for increasing the rates we are charging clients because when it comes to the personal loans so there is the classic case of the inverse selection. So that the higher the rates we are charging to our clients and the worst is the quality of clients you are attracting usually.

[Operator]

[Operator Instructions] Mr. Foti, there are no more questions registered at this time. I turn the conference back to you for any closing remarks.

[Alessandro Foti, executive]

Well, thank you for attending our conference and as usual for everybody that is in the need of deep diving in our numbers and guidance, please, we are available for any kind of follow-up on the presentation. Thank you again for attending the conference.

[Operator]

Ladies and gentlemen, thank you for joining, the conference is now over and you may disconnect your telephones.